3 Reasons HP Inc. is a Better Value Stock than Hewlett Packard Enterprise

It may seem difficult to find decent coins in the current sparkling market. However, the two halves of the company formerly known as Hewlett-Packard - HP (NYSE: HPQ) and Hewlett-Packard Enterprise (NYSE: HPE) - look like valuable games of value based on their low P / E.

HP trades at 12 times the profits, compared to its industry average of 20. HPE trades at 10 times the profits, which is much lower than its industry average of 30. According to these figures, Might seem that HPE is a better value. But if we look more closely at the two actions, we will notice that three simple factors make HP a better value than HPE.

1. Increasing core markets

Once the two companies were split at the end of 2015, HP retained the company's PC, printing and imaging businesses, while HPE retained its hardware, software and enterprise services. At the time, none of these markets seemed attractive: PC sales were blocked in a multi-year slump, printer sales were down due to paperless workstations and generic cartridges, and businesses were spending less On hardware, services and enterprise software solutions.

However, the PC market has begun to warm up again this year, thanks to the growing demand for laptops, convertibles and other 2-in-1 devices. That's why HP (Personal Systems) ) Increased by 10% per annum to $ 8.2 billion in the last quarter. HP printing sales continued to decline by 3% to $ 4.5 billion, but the company diversified with mobile printers for smartphones and industrial 3D printers, Its scale by acquiring Samsung's printing business.

 HPE, however, is still facing the weak business market. In the last quarter, Enterprise Group revenues fell 12% per year to $ 6.2 billion, while Business Services revenues decreased 11% to $ 4 billion , Software revenues decreased 8% to $ 721 million and Financial Services revenues decreased 6% to $ 823 million.

HPE faces the same defensive winds as its rival IBM (NYSE: IBM) - low corporate spending, competition from rivals nimbler and a market shift to cloud-based solutions. Blue Blue's 20 consecutive quarters of year-over-year revenue declines indicate that this smart market will not recover as quickly as possible.

2. Better revenue and profit growth

Given the differences between HP's main markets and HPE's, it is not surprising that Wall Street expects HP to post better and lower growth over the next two years.

Analysts expect HP's revenues to increase by 1% this year and decrease by 1% next year, as the PC market gradually settles and the company changes its impression. This growth is not impressive, but is much better than the projected HPE declines of 28% this year and 17% next year. In the final quarter, HPE attributed these declines to "increased pressure from currency movements, higher commodity prices and short-term execution problems."

HP and HPE use redemptions to increase their earnings. Over the past 12 months, HP has spent $ 702 million (19% of its free cash flow) on redemptions. HPE spent $ 1.83 billion on redemptions, exceeding its free cash flow and was partially funded by debt. Analysts are currently expecting HP's earnings to increase 1% this year and 5% next year. Again, these numbers are not great, but they are much better than the expected profits of HPE, which decline by 23% this year and 8% next year.

HP's steady growth in earnings allows it to pay a 2.8% dividend yield, which is supported by a payout ratio of 33%. This is more than double the yield of HPE of 1.4%, which is supported by a lower payout ratio of 13%.

3. Less moving parts

I usually like a company with fewer moving parts because they are easier to understand. HP's central PC and printer companies are crisp and market trends are easy to follow. HPE's activities are more complex and obscure, and CEO Meg Whitman seems to channel IBM by reducing jobs, eliminating businesses and complex mergers to boost its growth.

Prior to the division, HPE closed its public cloud service to focus on hybrid on-premise and less competitive cloud markets. He then agreed to target and merge his troubled computer service unit with Computer Science Corp. In an agreement of $ 8.5 billion, and then agreed to target its application delivery management activities, important data and "non-essential" security companies Micro Focus International into another $ 8.8 billion deal of dollars. It then acquired smaller companies - such as SGI's supercomputer and SimpliVity's hyperconverted infrastructure provider - to strengthen its hybrid cloud business. These are many moving parts compared to HP's PC, print and imaging companies.
The key to take away

I'm not saying HP is the ideal value stock for all investors: its growth is anemic and does not offer many compelling ways to grow in adjacent markets. But the company's key recovery markets, simpler business model, stable growth and higher dividends, make it a much better value stock than HPE.

Forget about HP: the "Total conviction" buying signal is issued
The co-founders of Motley Fool, David and Tom Gardner, rarely conform to a stock. But when they do, their choices have beaten the market by almost 10x on average. *

This is why many investors consider that their common stamp of approval is a signal of "total conviction" to buy. The Motley Fool recently announced a new stock of "total conviction" ... and it was not HP!